Vacancy in San Antonio’s retail market remained steady during the fourth quarter of 2019, with the overall vacancy rate unchanged quarter-over-quarter— and up 60 basis points year-over-year—at 5.2%. Net absorption increased during the fourth quarter at 197,000 sq. ft. compared to 167,000 sq. ft. in Q3 2019, and negative 348,000 sq. ft. this time last year..
Healthy retail market
Vacancy in San Antonio’s retail market remained steady during the fourth quarter of 2019, with the overall vacancy rate unchanged quarter-over-quarter— and up 60 basis points year-over-year—at 5.2%. Net absorption increased during the fourth quarter at 197,000 sq. ft. compared to 167,000 sq. ft. in Q3 2019, and negative 348,000 sq. ft. this time last year. Metro San Antonio’s leasing activity stood at 560,000 sq. ft., down slightly from the previous quarter and up a bit from the previous year. The retail market saw overall average asking rates dip by $0.27 per sq. ft. in Q4 2019 to $15.91 per sq. ft. on a triple-net basis, although increasing $0.63 from this time last year. San Antonio’s retail market has remained tight for the last five years and has seen occupancy rates at or above 94.5% for 17 consecutive quarters, or Q4 2015.
San Antonio economic indicators
A tight labor market persists in San Antonio as the seasonally adjusted unemployment rate held at a low 3.1% in November. The state rate remained at 3.4% for the fifth consecutive month and the U.S. rate dropped to 3.5%. In the three months ending in November, the metro added jobs at an annualized 4.7%. Growth by industry sector was led by leisure and hospitality at 13.9% (4,600 net jobs), followed by manufacturing at 13.7% (1,700 jobs), and construction at 12.4% (1,800 jobs). The U.S. Energy Information Administration reported that the closing spot price for a barrel of West Texas Intermediate was $61.14 per barrel as of December 31, 2019, up from $45.15 the same time last year. Baker Hughes reported the U.S. rig count at 805 as of December 27, 2019, down -279 from a year ago.
Demand outpaced supply
San Antonio’s retail market has been gradually tightening for the last five years and has seen occupancy rates at or above 94.5% for 17 consecutive quarters, or Q4 2015. This is due in part to steady demand for existing retail space and controlled, rising, retail construction. This controlled growth will support the steady retail progression taking place in the retail market. While new development has been slower to deliver, of the current 1.6 million sq. ft. completed in 2019, only 23% is available to lease. And of the 1.3 million sq. ft. of projects in the pipeline, about 60% of that space has been spoken for. Supply had outpaced demand during the previous four quarters, although net absorption outpaced completions in the fourth quarter of 2019. Only three quarters in the last 10 years have registered overall negative net absorption; Q3 2011, Q1 2017 and Q4 2018. That said, San Antonio certainly hasn’t been invulnerable from the store closure announcements in recent quarters. Sears, Gap, Charlotte Russe, and Payless ShoeSource have all announced store closures that affect San Antonio landlords, leaving behind empty storefronts. Some of the year’s largest leases have filled these spots. In example, Burlington would be taking a former Babies R Us at the Rim Shopping Center. Fitness, restaurants, and other service-oriented businesses continue to take space across the metro, benefiting from the market’s strong population growth.
Investment sales activity
Real Capital Analytics data reports the quarterly sales volume for Q4 2019 in the Greater San Antonio area at $80.5 million. The primary capital composition for buyers in 2019 was made up of 83.0% private investors, and 6.4% cross-border investors (a transaction is defined as cross-border if the buyer or major capital partner is not headquartered in the same country where the property is located). For sellers, the majority was 85.0% private, and 8.3% user/other investors. One of the largest sales transactions to take place in Q4 2019 is a portfolio of two retail properties sold in November 2019 for $16.8 million ($118/SF). The total size of these two properties is 142,523 sq. ft., located at 7650 FM 78 in the Northeast submarket. TRT Holdings sold the two shopping centers in an investment portfolio sale. Gravois Place sold for $10.5 million and the Walzem Shopping Center sold for $6.3 million. The sale represented a partial sale leaseback as Gold’s Gym is the largest tenant in the shopping centers.
Santikos new project
San Antonio-based Santikos Enterprises is planning its 10th multiscreen movie theater complex in Leon Springs, about 20 miles northwest of downtown San Antonio. The project will anchor the proposed 150,000-sq.-ft. Boerne Stage Crossing Shopping Center at Interstate 10 and Boerne Stage Road. Santikos recently opened a Cibolo movie theater and renovated the Rialto theater in Northeast San Antonio under its old name—Galaxy Theater. Further expansion in the region has talk of an 11th theater development a possibility.
The City of San Antonio reported that the Alameda Theater Conservancy will begin the initial phase of construction work to restore the historic Alameda Theater. The project includes the construction of the Texas Public Radio headquarters adjacent to the Alameda Theater, which opens in February 2020. Once complete in 2021, the historic Alameda Theater will serve as a live multimedia performing arts and film center that will feature the American-Latino multicultural story with diverse programming. The Alameda Theater was completed in 1949 as a Mexican-American entertainment venue and was the largest movie palace dedicated to Spanish language films and performing arts at that time.
Average asking rents remain at all-time highs
Last quarter, the retail market saw overall average asking rates reach their highest level recorded by NAI Partners. To end 2019, rates increased by $0.63 per sq. ft., year over year at $15.91 per sq. ft. on a triple-net basis. Quarter-over-quarter there was a slight decrease of $0.27. The fundamentals in San Antonio, such as an increasing population and strong job growth, has kept occupancy tight in the retail market. Interest in the highest-quality space, with the best location, and ease of accessibility will continue to demand the highest rents.
2019 home sales exceed previous years
According to the San Antonio Board of Realtors, home sales in the San Antonio area continued to increase steadily throughout the year, with 2019 ending in a total of 34,430 homes sold, a 7% year-over-year increase. Both the overall average and median sales prices for a home in the area in 2019 increased 4%, with the average rising to $270,275 and the median inching up to $233,800. Not only did the year as a whole flourish, every month except one–June–reported a year-over-year increase in total sales.
Director of Research
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